Early, in my journey into Optimal Living I took note of a phenomenon called diminishing returns. Diminishing Returns, is an economic term that states – an increase in value due to a single factor (when everything else remains the same) will eventually hit a peak resulting in less proportional value from that point onward.
To help understand the concept we must be aware of the peak point. This is the top point in a graph, at which everything after starts to fall. The tip is the instant where any attempt at improvement will no longer result in increased value. A diminishing return is anything on the falling side of this point or when you are putting extra effort into a project or investment that can no longer be improved in proportion of your effort. In simple terms, at this point you are putting in hours of work, energy, or money and this may improve the project slightly, but not enough to make it worthwhile. In other words you are wasting resources.
Rule of Diminishing Returns
Let’s look at an example.
Example 1 – A single car garage might cost $10 000, but add $20 000 of value of your home. A double car garage costs $20 000, but as it is more in demand adds $50 000 to the value of the house. The next logical step might be to think that adding a three car garage now at a price of $30 000, might raise the value to $70 000 or $80 000, but instead it only raises the value to $55 000 because most families only have two cars and it takes up a lot of space. Therefore, building a three car garage losses you money on your investment.
This is the rule of diminishing returns and the key is finding the peak value and stop at this point to receive the best gain. This website is about optimal living and not monetary investments so why don’t we look at another example.
Example 2 – Exercise -You decide to get into shape. A great goal! Getting a little exercise is better than getting none and the more intense your workout the better your results will be – up to a point. Part of exercise is the recovery period – exercising breaks down your muscles when you workout and they repair themselves stronger when you rest. It is a process, so if you exercise hard and all the time, you will not give your body the rest it needs to recover and your results will be less than if you worked out less. Everybody is different; so again it is finding that perfect point for you.
Maybe this doesn’t apply to you either – Let’s face it most people don’t workout too much!
Example 3 – Efficiency – This is where I want to discuss how the rule of diminishing results applies to Optimal Living. One of the keys to optimal living is productivity, but there is a danger of trying to be too productive and losing what was set out to be gained.
Is there a danger of trying too hard?
I will make the presumption that everyone loves saving money. But what ends will you go to save money?
Is saving money actually costing you money?
- Do you drive to three different grocery stores because things are on sale? Saving $10 on food, but spending $15 on gas and an extra hour of time.
- Or drive to the other side of town to the cheap gas station, saving you $5, but costing you the same amount to get there.
- Your money isn’t doing anything for you. You keep your savings in a bank account that has very little interest – making you actually lose money from inflation. Use it instead to pay off debt or invest into something with a higher rate.
- DIY – We are in a do-it-yourself age, but taking this approach could cost you money in the long run. Are you expert? Do you know what you are doing? Are you wasting materials? Trying to save a buck doing it yourself might be costing you.
- Buying in Bulk. Something was on sale and you are storing up, but will you actually use these products before they expire. Think about these purchases carefully.
The goal of productivity is save you time. It is achieved by practicing first-rate time management skills, being organized, and having useful daily habits. Watch out for these productivity traps:
- Over Planning – Planning is great, but if you spend an hour planning out a fifteen minute drive you are wasting time and effort!
- Multitasking – Multitasking can be effective, but be sure to multi-task the best combination of tasks. If not the result could be a poor performance on a number of tasks, instead of excellent work on a couple.
- Scheduling – having a plan is important, but be sure there is flexibility in that plan and some room for error. Remember the rule that if something can go wrong it will. If you spend too much time planning and not enough doing you will run out of time and only have to plan again all the tasks you didn’t get to.
The List goes on… I’ve only started investigating this phenomenon and will write about the topic again when I learn more.
The key to remember – As the examples imply, there is a limit to how much you can improve something for the amount (money, time, energy) invested. Eventually a ceiling will be hit, where the payoff is just not worth it.
Keep this is mind – always reach for that peak point, but try not to surpass it.
Is the Rule of Diminishing Returns working for you?